I accept that I may be an outlier on the debate that charity success should NOT be measured by a percentage of administrative overhead or specifically using the traditional 10% marker. So, let me share some of my thoughts why I think its prudent to have the 10/90 formula and perhaps it will stimulate further discussion amongst board, management and donors.
- Having management and governance volunteers draw a line at 10% can encourage robust and fruitful discussions about administrative effectiveness. The micro discussion surrounding variances to actual vs budget should lead to a deeper dive into how all spending is achieving the mission and social impact.
- Without nonprofit sector common classifications for accounting purposes, management can (and some often do) get creative on how they report expenses. Having a 10% mark can force the governance discussion on what and how expenses are reported. Charities should be reporting greater details about their admin expenses, identifying efficiencies (and deficiencies), while communicating the organization’s overall ROR and ROIs.
- The 10% boundary line can encourage management and staff to regularly, if not daily, evaluate their performance and commitment to donors. I believe there is nothing wrong with keeping donor generosity top of mind in everything we do.
- The idea “every dollar spent is a mission-driven spend” is a fallacy. Not all expenses are good expenses or can be attributed to meaningful, long-lasting social impact. I believe it is everyone’s responsibility inside the organization to be asking the tough questions about where and why they spend the donations and if, in fact, the level of social impact is achieved in line with the investment. The 10% fomula can serve as a deteriate for wasteful spending and promote better strategic and tactical investment.
- Holding onto a 10% administrative spending formula provides a jumping off point for educational discussions with current and potential donors, provides positive downward pressure to hold expenses without choking investment, and hopefully promotes a more transparent reporting exchange with donors that can help build credibility, trust and mutual respect.
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